Stocks gapped up at the open on a better than expected jobs report. The Dow and SPX are up 56 pts & .17%, respectively. The VIX Index is down under 12. Financials are leading the way, up over 1% in early trading. Utilities and energy are down over 1%. In fact, although utilities led the market for most of the year, they’re flat for the last month and it looks like the leadership has changed. The dollar is stronger on the day and commodities are lower. Copper is now down 15% on the year and WTI crude oil just fell to a fresh 4-year low ($65/barrel). Bonds are down today as yields spike. The 5-year Treasury yield is up to 1.68% and the 10-year is trading at 2.31%.
The economy generated 321,000 net new jobs in November—way ahead of expectations. In addition, October payrolls were upwardly revised to 243,000 from the initial estimate of 214,000. So that’s the tenth consecutive month of 200,000+ jobs created. The unemployment rate held steady at 5.8% and the under-employment rate edged down to 11.4%. Average hourly earnings shot up .4% and you have to go back to 2011 get to a month-over-month growth figure that strong. On a year-over-year basis wages are growing at a modest 2.1% pace. The average workweek also rose to 34.6 hours from 34.5 hours in the prior month. That’s a big deal. In terms of output, a CNBC guest this morning said one-tenth of an hour is nearly equivalent to 400,000 new jobs. This report will make it difficult for bears to claim the labor market isn’t improving, and it gives fuel to the argument that the labor market is actually close to full employment. In addition, it gives credence to the argument that the Federal Reserve is going to have to begin raising interest rates by mid-2015.
The US trade deficit held roughly steady at $-43.4bil in October. Economists expected it to shrink a bit due to falling oil prices, but US consumers are demanding more imported goods. For some perspective, pre-recession trade deficits were running about -$60bil to -$65bil. During the month, excluding petroleum products, US imports rose .9% and exports were up 1.2%. Both had been negative in the third quarter, so this report is mildly encouraging.
US factory orders fell .7% m/m in October following a .5% decline in the prior month. We’ve seen much higher volatility in orders lately (i.e. +10% m/m to -10% m/m). Durable goods orders have been stronger than non-durables. On a year-over-year basis, orders are rising at a 2% clip and that’s about the average looking back a year or two. This report doesn’t really jive with other recent manufacturing sector data (i.e. ISM Manufacturing Index), which suggest strength.
MikesMarketUpdate 